Ethiopia’s central bank has increased its benchmark policy interest rate from 15 per cent to 16 per cent, marking its first adjustment since the current monetary policy framework was introduced in 2024. The National Bank of Ethiopia said the decision was taken in response to renewed inflationary pressures arising largely from higher international oil prices, which have increased import costs and placed additional strain on domestic price stability.
The move comes as Ethiopia continues implementing broad macroeconomic reforms aimed at stabilising the economy while supporting sustainable long term growth. According to the central bank, annual headline inflation accelerated to 13.4 per cent in May 2026, compared with 11.7 per cent recorded in April, reflecting the impact of rising fuel costs and broader price pressures across the economy.
In its latest monetary policy statement, the National Bank of Ethiopia said inflation is expected to moderate during the second half of 2026 but is likely to remain in double digits over the next six months before gradually returning to single digit levels over the medium term. The bank reaffirmed its commitment to maintaining a prudent monetary policy stance and indicated that it would continue deploying indirect monetary policy instruments to contain inflationary risks while supporting financial sector stability.
Alongside the interest rate increase, the central bank announced several measures intended to improve liquidity and enhance the efficiency of Ethiopia’s foreign exchange market. These include reducing the foreign exchange surrender requirement for goods exporters from 50 per cent to 30 per cent, lowering the foreign exchange commission charged by the central bank from 2.5 per cent to 1.5 per cent, removing an existing credit growth cap, and introducing a targeted reserve requirement linked to each commercial bank’s loan to deposit ratio.
The reforms form part of Ethiopia’s broader programme to modernise its financial system and improve the functioning of domestic markets. Since Prime Minister Abiy Ahmed assumed office in 2018, the government has gradually opened previously state dominated sectors of the economy while pursuing structural reforms designed to encourage private investment, strengthen financial institutions and improve macroeconomic resilience.
For many African economies that remain significant net importers of petroleum products, fluctuations in global oil prices continue to present complex policy challenges. Central banks across the continent have increasingly relied on monetary policy adjustments alongside structural reforms to balance inflation control with economic growth objectives. Ethiopia’s latest measures reflect this wider regional effort to strengthen economic resilience while maintaining investor confidence amid evolving global market conditions.
The National Bank of Ethiopia indicated that it will continue monitoring domestic and international economic developments closely and stands ready to adjust policy further should inflationary pressures persist.
